Note 19. Segment Results

The Company has three reportable segments: Commercial and Private Banking, Wealth Management and Other. The factors considered in determining whether individual operating segments could be aggregated include that the operating segments: (i) offer the same products and services, (ii) offer services to the same types of clients, (iii) provide services in the same manner and (iv) operate in the same regulatory environment. The management accounting process measures the performance of the operating segments based on the Company’s management structure and is not necessarily comparable with similar information for other financial services companies. If the management structures and/or the allocation process changes, allocations, transfers and assignments may change.

The Commercial and Private Banking reportable segment is the aggregation of the Commercial and Private Banking, Real Estate, Entertainment, Corporate Banking, Core Branch Banking and FAEF operating segments. The Commercial and Private Banking segment provides banking products and services, including commercial and mortgage lending, lines of credit, equipment lease financing, deposits, cash management services, international trade finance and letters of credit to small and medium-sized businesses, entrepreneurs and affluent individuals. This segment primarily serves clients in California, New York, Nevada, Tennessee and Georgia. FAEF serves clients nationwide.

The Wealth Management segment includes the Corporation’s investment advisory affiliates and the Bank’s Wealth Management Services. The asset management affiliates and the Wealth Management division of the Bank make the following investment advisory and wealth management resources and expertise available to individual and institutional clients: investment management, wealth advisory services, brokerage, retirement, estate and financial planning and personal, business, custodial and employee trust services. The Wealth Management segment also advises and makes available mutual funds under the name of City National Rochdale Funds. Both the asset management affiliates and the Bank’s Wealth Management division provide proprietary and nonproprietary products and offer a full spectrum of investment solutions in multiple asset classes and investment styles, including fixed-income instruments, mutual funds, domestic and international equities and alternative investments such as hedge funds. This segment serves clients nationwide.

The Other segment includes all other subsidiaries of the Company, the corporate departments, including the Treasury Department and the Asset Liability Funding Center, that have not been allocated to the other segments, and inter-segment eliminations for revenue recognized in multiple segments for management reporting purposes. The Company uses traditional matched-maturity funds transfer pricing methodology. However, both positive and negative variances occur over time when transfer pricing non-maturing balance sheet items such as demand deposits. These variances, offset in the Funding Center, are evaluated at least annually by management and allocated back to the business segments as deemed necessary.

Business segment earnings are the primary measure of the segment’s performance as evaluated by management. Business segment earnings include direct revenue and expenses of the segment as well as corporate and inter-company cost allocations. Allocations of corporate expenses, such as data processing and human resources, are calculated based on estimated activity levels for the fiscal year. Costs associated with intercompany support and services groups, such as Operational Services, are allocated to each business segment based on actual services used. Capital is allocated based on the estimated risk within each business segment. The methodology of allocating capital is based on each business segment’s credit, market, and operational risk profile. If applicable, any provision for credit losses is allocated based on various credit factors, including but not limited to, credit risk ratings, credit rating fluctuation, charge-offs and recoveries and loan growth.

Effective with second quarter 2013 reporting, the methodology for allocating the provision for income taxes to the segments was revised to base the allocation on the Company’s effective tax rate. The allocation was previously based on the statutory tax rate. Prior period segment results have been revised to reflect this change in methodology.

Exposure to market risk is managed in the Company’s Treasury department. Interest rate risk is mostly removed from the Commercial and Private Banking segment and transferred to the Funding Center through a fund transfer pricing (“FTP”) methodology and allocation model. The FTP model records a cost of funds or credit for funds using a combination of matched maturity funding for fixed term assets and liabilities and a blended rate for the remaining assets and liabilities with varying maturities.

The Bank’s investment portfolio and unallocated equity are included in the Other segment. Amortization expense associated with customer-relationship intangibles is charged to the affected operating segments.

Selected financial information for each segment is presented in the following tables. Commercial and Private Banking includes all revenue and costs from products and services utilized by clients of Commercial and Private Banking, including both revenue and costs for Wealth Management products and services. The revenues and costs associated with Wealth Management products and services that are allocated to Commercial and Private Banking for management reporting purposes are eliminated in the Other segment. The current period reflects any changes made in the process or methodology for allocations to the reportable segments. Prior period segment results have been revised to conform to current period presentation.

	For the three months ended September 30, 2013
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company

Earnings Summary:
Net interest income	$	194,678	$	243	$	19,350		$	214,271
Provision for losses on covered loans	2,496		—		—			2,496
Noninterest income	38,601		57,536		(7,254		)	88,883
Depreciation and amortization	3,263		1,878		4,618			9,759
Noninterest expense	170,019		48,184		(18,598		)	199,605
Income before income taxes	57,501		7,717		26,076			91,294
Provision for income taxes	17,153		2,120		7,779			27,052
Net income	40,348		5,597		18,297			64,242
Less: Net income attributable to noncontrolling interest	—		609		—			609
Net income attributable to City National Corporation	$	40,348	$	4,988	$	18,297		$	63,633

Selected Average Balances:
Loans and leases, excluding covered loans	$	15,989,181	$	—	$	50,572		$	16,039,753
Covered loans	818,928		—		—			818,928
Total assets	17,014,239		644,677		10,402,218			28,061,134
Deposits	23,817,083		76,052		408,512			24,301,647
Goodwill	393,176		249,446		—			642,622
Customer-relationship intangibles, net	4,445		39,024		—			43,469

	For the three months ended September 30, 2012
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company

Earnings Summary:
Net interest income	$	184,552	$	1,133	$	24,237		$	209,922
Provision for credit losses on loans and leases, excluding covered loans	2,000		—		—			2,000
Provision for losses on covered loans	18,089		—		—			18,089
Noninterest income	59,911		54,405		(7,059		)	107,257
Depreciation and amortization	3,569		1,996		4,691			10,256
Noninterest expense	169,652		45,387		(17,409		)	197,630
Income before income taxes	51,153		8,155		29,896			89,204
Provision for income taxes	16,730		2,545		9,777			29,052
Net income	34,423		5,610		20,119			60,152
Less: Net income attributable to noncontrolling interest	—		372		—			372
Net income attributable to City National Corporation	$	34,423	$	5,238	$	20,119		$	59,780

Selected Average Balances:
Loans and leases, excluding covered loans	$	13,526,284	$	—	$	61,224		$	13,587,508
Covered loans	1,207,031		—		—			1,207,031
Total assets	15,098,090		638,445		9,918,059			25,654,594
Deposits	21,298,105		104,195		538,520			21,940,820
Goodwill	393,176		239,297		—			632,473
Customer-relationship intangibles, net	7,392		47,359		—			54,751

	For the nine months ended September 30, 2013
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company

Earnings Summary:
Net interest income	$	563,662	$	805	$	53,796		$	618,263
Provision for losses on covered loans	461		—		—			461
Noninterest income	119,418		171,461		(26,259		)	264,620
Depreciation and amortization	10,505		5,654		13,884			30,043
Noninterest expense	512,234		143,920		(54,064		)	602,090
Income before income taxes	159,880		22,692		67,717			250,289
Provision for income taxes	47,414		6,238		20,083			73,735
Net income	112,466		16,454		47,634			176,554
Less: Net income attributable to noncontrolling interest	—		1,657		—			1,657
Net income attributable to City National Corporation	$	112,466	$	14,797	$	47,634		$	174,897

Selected Average Balances:
Loans and leases, excluding covered loans	$	15,378,936	$	—	$	53,303		$	15,432,239
Covered loans	905,411		—		—			905,411
Total assets	16,505,794		647,273		10,594,847			27,747,914
Deposits	22,696,050		100,922		487,093			23,284,065
Goodwill	393,176		249,446		—			642,622
Customer-relationship intangibles, net	5,174		40,197		—			45,371

	For the nine months ended September 30, 2012
	Commercial and		Wealth					Consolidated
(in thousands)	Private Banking		Management		Other			Company

Earnings Summary:
Net interest income	$	541,125	$	2,396	$	83,593		$	627,114
Provision for credit losses on loans and leases, excluding covered loans	3,000		—		—			3,000
Provision for losses on covered loans	38,848		—		—			38,848
Noninterest income	156,884		133,743		(32,902		)	257,725
Depreciation and amortization	10,565		4,980		13,556			29,101
Noninterest expense	506,437		117,650		(50,066		)	574,021
Income before income taxes	139,159		13,509		87,201			239,869
Provision for income taxes	45,469		4,080		28,493			78,042
Net income	93,690		9,429		58,708			161,827
Less: Net income attributable to noncontrolling interest	—		1,024		—			1,024
Net income attributable to City National Corporation	$	93,690	$	8,405	$	58,708		$	160,803

Selected Average Balances:
Loans and leases, excluding covered loans	$	12,994,726	$	—	$	55,797		$	13,050,523
Covered loans	1,328,484		—		—			1,328,484
Total assets	14,656,439		569,047		9,332,544			24,558,030
Deposits	20,469,604		100,038		469,149			21,038,791
Goodwill	362,868		188,197		—			551,065
Customer-relationship intangibles, net	8,173		33,240		—			41,413